Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

The vast majority of retail client accounts lose money when trading CFDs.

You should consider whether you can afford to take the high risk of losing your money.

Important Notice - Fraud awareness
Important Notice - Scam alert
The vast majority of retail client accounts lose money when trading CFDs.
Important Notice - Fraud awareness
Important Notice - Scam alert
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Important Notice - Fraud awareness
Important Notice - Scam alert
The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
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Gold Prices Move Higher After Fed Raises Interest Rates

XAUUSD - In the early hours of Thursday, the Fed's interest rate decision was finally announced, with the Fed raising rates by 75 basis points as the market expected. Therefore, the rate hike had already been priced in by the market. After the announcement of the monetary policy meeting results, the US dollar fell, and the stock market rose sharply. We also noticed that gold prices, which has been relatively sluggish recently, rose sharply after the interest rate hike announcement. Gold is currently hovering around US$1,750. Investors are also looking forward to higher gold prices in the future.gold chart

Subsequent comments from Federal Reserve Chairman Jerome Powell gave gold bulls an opportunity. He said that with the Fed’s monetary policy stance tightening further, it might be appropriate to slow the rate hikes at some point. Still, the Fed has not yet decided when to start slowing the pace of rate hikes.

However, this means the possibility of future aggressive rate hikes from the Fed is diminishing. The market will likely shift its bets on the Fed, raising interest rates by 50 basis points in September instead of 75. The market's expectation of higher interest rates has started to cool down.

The recent economic performance in Europe and the United States has not been satisfactory, and consumer confidence is still sluggish. Although Powell mentioned to the media that there is currently no economic recession in the United States, he also said that the US economic growth would be below previous trends for some time. The possibility of a soft landing has fallen significantly. The economy's reaction after the interest rate hike remains to be seen over the coming weeks and months. Future data releases will also need to corroborate whether record-high inflation is gradually falling. If inflation is not contained, there may be a rebound in the dollar and a decline in gold prices.

Furthermore, after entering the year's second half, many factors support the rebound in gold prices. However, because the market has been anticipating the Fed raising interest rates, this has created continuous pressure on the gold price, allowing the bears to dominate the market. Now that the decision to raise interest rates has been made, the focus for gold investors has shifted to further interest rate hikes by the European Central Bank. Its first interest rate hike of 50 basis points exceeded market expectations. However, the interest rate hikes in the eurozone could begin to catch up with the United States. Higher rates may boost the EURUSD exchange rate and exert downward pressure on the dollar. Therefore, gold bulls may also have an opportunity to profit.

On the one hand, global risk aversion has continued unabated. Global economic recession concerns have not subsided, especially if the European and American central banks continue to raise interest rates to fight inflation. This could further reduce demand and slow down economic growth, so the risk of an economic recession will affect local currencies. More safe-haven asset seekers will flock to the gold market, which will help the recovery in gold prices. Still, the magnitude is expected to be limited. Suppose European debt risks continue to pressure the euro in the future. In that case, it is also possible that both the dollar and gold will rise.

On the other hand, financial markets have not yet assessed the risks posed by the recent rise in monkeypox virus cases in the United States and Europe. If the risk of the epidemic continues to rise, investors will become more risk-averse, which should benefit gold prices.

There are many favourable factors for gold in the year's second half. However, the inflation situation in Europe and the United States is still tricky, and there is no apparent decline. Moreover, the energy supply shortage continues to plague European and American countries, which may limit the short-term rally in gold prices. Therefore, the key to determining the short-term trend in gold prices is still the recent inflation and economic data released by various countries. There is equal opportunity for both bulls and bears in the year's second half.

Last Updated: 29/07/2022

This market commentary and analysis has been prepared for ATFX by a third party for general information purposes only. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell as it does not take into account your personal circumstances or objectives, and should therefore not be interpreted as financial, investment or other advice, or relied upon as such. You should therefore seek independent advice before making any investment decisions. This information has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. We aim to establish and maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients. The market data is derived from independent sources believed to be reliable, however we make no representation or warranty of its accuracy or completeness, and accept no responsibility for any consequence of its use by recipients. Reproduction of this information, in whole or in part, is not permitted.


 

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